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NASDAQ CXC Limited
Trading Functionality Guide
© 2017 Nasdaq CXC Limited Page i
CONTENTS
1 PURPOSE ...................................................................................................................................... 1
2 OVERVIEW .................................................................................................................................... 2
3 TRADING OPERATIONS ............................................................................................................. 3
3.1 TRADING SESSIONS ....................................................................................................................... 3 3.1.1 Time .......................................................................................................................................... 3 3.1.2 Opening .................................................................................................................................... 3 3.1.3 Close ......................................................................................................................................... 3
3.2 ELIGIBLE SECURITIES .................................................................................................................... 3 3.3 MINIMUM PRICE INCREMENT ......................................................................................................... 3 3.4 BOARD LOT SIZES ......................................................................................................................... 4
4 TRADING BOOKS OF NASDAQ CANADA ............................................................................... 5
4.1 CXC TRADING BOOK ..................................................................................................................... 5 4.2 CX2 TRADING BOOK ..................................................................................................................... 5 4.3 CXD TRADING BOOK ..................................................................................................................... 5
5 ORDER MATCHING PRIORITY .................................................................................................. 6
5.1 PRICE PRIORITY ............................................................................................................................. 6 5.2 TIME PRIORITY ............................................................................................................................... 6 5.3 BROKER PRIORITY ......................................................................................................................... 6
5.3.1 Trade Matching Priority of Nasdaq Canada Trading Books ............................................. 7
6 ORDER TYPES ............................................................................................................................. 8
6.1 TRADITIONAL ORDER TYPES ......................................................................................................... 8 6.1.1 Market Order ........................................................................................................................... 8 6.1.2 Limit Order ............................................................................................................................... 8 6.1.3 Short Sell Order ...................................................................................................................... 8 6.1.4 Short Marking Exempt Order ................................................................................................ 8
6.2 SPECIALIZED ORDER TYPES/MARKERS ........................................................................................ 8 6.2.1 Bypass Order ........................................................................................................................... 8 6.2.2 Directed Action Order (DAO) ................................................................................................ 9 6.2.3 Post Only Orders .................................................................................................................. 10 6.2.4 Iceberg/Reserve Order ........................................................................................................ 11 6.2.5 X-Berg Order ......................................................................................................................... 12
6.3 CROSSES ..................................................................................................................................... 12 6.3.1 Intentional Crosses ............................................................................................................... 12 6.3.2 Internal Cross ........................................................................................................................ 13 6.3.3 Basis Cross ............................................................................................................................ 13 6.3.4 VWAP Cross .......................................................................................................................... 13 6.3.5 Contingent Cross .................................................................................................................. 13
6.4 PEGGED ORDERS ........................................................................................................................ 13 6.4.1 Primary Peg ........................................................................................................................... 13 6.4.2 Mid Peg .................................................................................................................................. 15 6.4.3 Market Peg ............................................................................................................................. 15 6.4.4 Peg Offset .............................................................................................................................. 16 6.4.5 Pegged Order Handling ....................................................................................................... 17
6.5 NON-DISPLAYED ORDERS ........................................................................................................... 17 6.5.1 Hidden Limit Order ................................................................................................................ 17 6.5.2 Mid Peg Orders ..................................................................................................................... 17 6.5.3 Minimum Quantity ................................................................................................................. 20
© 2017 Nasdaq CXC Limited Page ii
6.5.4 Minimum Acceptable Quantity ............................................................................................ 22 6.5.5 Minimum Price Improvement Order ................................................................................... 23
6.6 TIME IN FORCE CONDITIONS ....................................................................................................... 25 6.6.1 Day .......................................................................................................................................... 25 6.6.2 Immediate or Cancel (IOC) ................................................................................................. 25 6.6.3 Fill or Kill (FOK) ..................................................................................................................... 25
7 SUMMARY OF TRADING BOOK ORDERS ............................................................................ 26
8 ODD LOT TRADING ................................................................................................................... 27
8.1 OVERVIEW ................................................................................................................................... 27 8.2 HOW IT WORKS............................................................................................................................ 27
9 NASDAQ CX2 GUARANTEED EXECUTION FACILITY ........................................................ 30
9.1 OVERVIEW ................................................................................................................................... 30 9.2 HOW IT WORKS............................................................................................................................ 30 9.3 GEF MEMBERS COMMITTED VOLUME ........................................................................................ 31 9.4 COMPETION BETWEEN GEF MEMBERS ...................................................................................... 31 9.5 HOW ORDER ALLOCATION WORKS ............................................................................................. 31 9.6 GEF MEMBER CRITERIA FOR APPOVAL ..................................................................................... 33 9.7 GEF MEMBER OBLIGATIONS....................................................................................................... 34 9.8 GEF ELIGIBLE ORDERS .............................................................................................................. 34 9.9 GEF UMIR IDS ........................................................................................................................... 34
10 NON-DISPLAY ORDER HANDLING IN COMPLIANCE WITH IIROC DARK RULE
FRAMEWORK ..................................................................................................................................... 35
10.1 OVERVIEW ................................................................................................................................... 35 10.2 HOW IT WORKS............................................................................................................................ 35
11 ORDER HANDLING COMPLIANCE WITH THE ORDER PROTECTION RULE .................. 37
11.1.1 The Order Protection Rule .............................................................................................. 37 11.1.2 Nasdaq Canada Order Protection rule .......................................................................... 37 11.1.3 How it Works ..................................................................................................................... 38
12 NASDAQ CANADA RISK MANAGEMENT TOOLS ................................................................ 40
12.1 CANCEL ON DISCONNECT ............................................................................................................ 40 12.2 NO-SELF TRADE .......................................................................................................................... 40 12.3 ORDER ENTRY PARAMETERS ...................................................................................................... 40
12.3.1 Price Thresholds ............................................................................................................... 40 12.3.2 Share Limit ........................................................................................................................ 40 12.3.3 Notional Limit .................................................................................................................... 40
12.4 MARKETPLACE THRESHOLDS ...................................................................................................... 41 12.4.1 Overview ............................................................................................................................ 41 12.4.2 Marketplace Threshold Levels........................................................................................ 41 12.4.3 Nasdaq Canada Marketplace Thresholds .................................................................... 41 12.4.4 How it Works ..................................................................................................................... 42
© 2017 (“Nasdaq CXC Limited”).All rights reserved.
The copyright in the whole and every part shall not be copied or reproduced in whole or any part in any manner or form or
in or on any media without the prior written consent of Nasdaq CXC Limited
© 2017 Nasdaq CXC Limited Page iii
REVISION HISTORY
VERSION DESCRIPTION DATE
1.0 Initial Guide for Exchange Application July 2017
1.1 Amended for inclusion of GEF Facility October 2017
© 2017 Nasdaq CXC Limited Page 1
1 Purpose
This Trading Functionality Guide (Guide) serves as companion guide to the Nasdaq CXC Limited
Trading Rules and Policies. The Guide provides additional details with examples around the
trading features offered by Nasdaq CXC Limited (Nasdaq Canada) including order types, risk
controls and order handling to ensure compliance with regulations including the Order Protection
Rule (OPR) and the Investment Industry Organization of Canada (IIROC) Dark Rule Framework.
The document will be updated periodically when new functionalities are introduced or amended.
Unless otherwise defined or interpreted, every term that is defined in the Trading Rules has the
same meaning in this Guide.
© 2017 Nasdaq CXC Limited Page 2
2 Overview
Nasdaq Canada operates three independent trading books; CXC, CX2 and CXD. CXC is a lit
book offering Members the benefits of anonymous trading with the option to elect post trade
attribution. CX2 is a lit book offering Members the benefits of order attribution and
price/broker/time execution priority. CXD is a dark book offering Members opportunities for price
improvement and reduced information leakage. CXD offers post trade attribution and
price/broker/time execution priority. Each book operates independently of one another supporting
its own market data feed. Order entry instructions for each book use the Financial Information
Exchange protocol (FIX).
Trading Book
Securities
Traded
Market Data Order Entry
CXC - an anonymous continuous
auction market based on strict
price/time priority.
CX2 – a continuous auction
market offering on-exchange
internalization opportunities
through broker preferencing for
attributed orders.
CXD – a continuous auction
dark market offering price
improvement opportunities and
broker preferencing.
Listed
Securities
on the TSX,
TSX-V, and
the CSE
The CXC market data feed
offers full depth of book
(price/volume) as well as
trade data.
The CX2 market data feed
offers full depth of book
(price/volume) as well as
trade data.
The CXD market data feed
only publishes trade data.
Industry-standard FIX
protocol order entry via
third-party and proprietary
execution management
systems.
© 2017 Nasdaq CXC Limited Page 3
3 Trading Operations
3.1 Trading Sessions
3.1.1 Time
The Trading Sessions for the CXC and CX2 Trading Books are from 8:30 a.m. to 5:00 p.m.
(EST).
The Trading Session for the CXD Trading Book is from 9:30 a.m. to 4:00 p.m. (EST)
3.1.2 Opening
CXC and CX2: The CXC and CX2 Trading Books do not accept orders before the open at 8:30
a.m. At 8:30 a.m. each Trading Book uses a shotgun style open where orders are processed in
the sequence they are received.
CXD: The CXD Trading Book accepts orders at 8:30 which are held by the system in price/time
priority until the open at 9:30 a.m. At 9:30 a.m. all orders are entered into the CXD order book in
the context of the NBBO. Any buy order that has a price above the NBO will be repriced one tick
increment below the NBO. Any sell order that has a price below the NBB will be repriced one tick
increment above the NBB. All other orders will enter the book at the price that the order is
entered.
3.1.3 Close
CXC and CX2: At 5:00 p.m. the CXC and CX2 Trading Books close. At this time matching no
longer takes place and orders in the book are cancelled back to the Members.
CXD: At 4:00 p.m. the CXD Trading Book close. At this time matching no longer takes place and
orders in the book are cancelled back to the Members.
3.2 Eligible Securities
Securities listed on the following Canadian Exchanges are available for trading on each Nasdaq
Canada Trading Book:
TSX
TSX-V
CSE
3.3 Minimum Price Increment
All Trading Books only permit orders to be entered in the minimum tick increments allowed by
UMIR. These increments are as follows:
For securities with a price >=$.50 a minimum price increment of $.01 CAD
For stocks with a price < $.50 a minimum price increment of $.005 CAD
© 2017 Nasdaq CXC Limited Page 4
3.4 Board Lot Sizes
Each Trading Book permits orders to be entered in Board Lots that are defined as Standard
Trading Units (defined by UMIR) and Odd Lots. Odd lot and Mix Lot orders are accepted and
handled by each Trading Book as described in the Odd Lot Trading section of this Guide.
© 2017 Nasdaq CXC Limited Page 5
4 Trading Books of Nasdaq Canada
4.1 CXC Trading Book
CXC is a lit Trading Book offering a continuous auction market matching orders based on
price/time priority.1 All orders entered on CXC are anonymous by default. Members may elect to
have post-trade attribution on an order by order basis. CXC supports the entry of round lot and
odd lot orders.
CXC supports a suite of orders that are visible and hidden. All visible orders are given priority
over hidden orders at the same price. All CXC non-display orders are handled in compliance with
IIROC’s Dark Rule Framework2 which is enforced by the Nasdaq Canada trading system
(Nasdaq Canada System).
4.2 CX2 Trading Book
CX2 is a lit Trading Book offering a continuous auction ma’rket matching orders based on
price/broker/time priority.3 Members may elect to have their orders be entered without attribution
by selecting the anonymous order marker. All attributed orders are eligible for broker preferencing
automatically whereas anonymous orders are not. Jitney orders are not eligible to participate in
broker preferencing.
CX2 supports a suite of orders that are visible and hidden. All visible orders are given priority over
hidden orders at the same price. All CX2 non-display orders are handled in compliance with
IIROC’s Dark Rule Framework which is enforced by the Nasdaq Canada System.
4.3 CXD Trading Book
CXD is a dark Trading Book (no pre-trade transparency) offering a continuous auction market that
matches orders based on price/broker/time priority.4 Members may elect to have their orders be
entered without attribution by selecting the anonymous order marker. All attributed orders are
eligible for broker preferencing automatically whereas anonymous orders are not. Jitney orders
are not eligible to participate in broker preferencing.
As a dark book, all CXD non-display orders are handled in compliance with IIROC’s Dark Rule
Framework which is enforced by the Nasdaq Canada System.
1 For a description of trade matching priority see Section 5.
2 See Section 10 for a description of Nasdaq Canada’s handing of non-displayed orders in accordance with
IIROC’s Dark Rule Framework. 3 For a description of trade matching priority see Section 5.
4 For a description of trade matching priority see Section 5.
© 2017 Nasdaq CXC Limited Page 6
5 Order Matching Priority
The sequence of priority for matching orders in the order book with eligible marketable orders is
determined by the several characteristics; price, time, and the broker number of the order if the
order that is entered is attributed.
5.1 Price Priority
Priority is given to an order with the best price (highest bid or lowest offer).
Priority Broker ID # Size Bid Offer Size Broker ID #
P1 09 300 10.00 10.01 500 85
P2 07 100 9.99 10.02 600 63
P3 05 100 9.98 10.03 100 07
The buy order for 300 shares entered by broker #09 has execution priority because it is the
highest price bid. Likewise, the sell order for 500 shares entered by broker #85 has execution
priority because it is the lowest price offer.
5.2 Time Priority
Priority is given to an order at a price that was entered first.
Priority Broker ID # Size Arrival Time Bid
P1 09 300 9:30:01 10.00
P2 07 100 9:31:00 10.00
P3 05 100 9:32:00 10.00
In this example, the buy order for 300 shares by broker #09 entered at 9:30:01 has execution
priority because it was entered before the other two orders for 100 shares at the same price.
5.3 Broker Priority
Priority is given to an order at the same price with the same broker ID before orders at that price
which were entered first.
Priority Broker ID # Size Arrival Time Bid
P1 09 300 9:31:00 10.00
P2 07 100 9:31:00 10.00
P3 05 100 9:31:00 10.00
This snapshot of the bid side of the protected market is identical to the example provided in 5.2
for time priority. However, unlike the 300 share order that was entered first and had priority in the
aforementioned example, broker priority allows for a contra-side sell order entered by a Member
to execute against a buy order entered by that same Member first. In this example, if a sell order
© 2017 Nasdaq CXC Limited Page 7
is entered at 10.00 by either broker #07 or broker #05, it will first match with the buy order entered
by the same Member before proceeding to execute with other orders in priority.
This is demonstrated when broker #07 enters a sell order for 100 shares at 10.00.
Action: #07 enters a sell order for 100 shares.
Priority Broker ID # Size Arrival Time Bid
P1 09 300 9:31:00 10.00
P2 07 100 9:31:00 10.00
P3 05 100 9:31:00 10.00
Although broker #09 had time priority in the book, broker priority oversteps the time priority of this
order and instead priority is given to the buy order entered by broker #07.
Action: #07’s buy order (P2) executes against the incoming sell order by #07 for 100 shares.
5.3.1 Trade Matching Priority of Nasdaq Canada Trading Books
Orders are matched based on the following sequence of priority for each of Nasdaq Canada
Trading Books:
CXC: Price/Time
CX2: Price/Broker/Time
CXD: Price/Broker/Time
© 2017 Nasdaq CXC Limited Page 8
6 Order types
6.1 Traditional Order Types
6.1.1 Market Order
A Market Order is an order to buy or sell a security at the best available price on a trading book
but will not trade at a price outside the NBBO5. If there are no orders resting in the Trading Book
that the order is entered, the Market Order is converted to a Market Peg Order.
6.1.2 Limit Order
A Limit Order is an order to buy or sell a security at a price equal to, or better than, the specified
limit price.
6.1.3 Short Sell Order
A Short Sell Order is an order to sell a security that the seller does not own (either directly or
through an agent or trustee) at the time of the order.
6.1.4 Short Marking Exempt Order
A Short Marking Exempt Order is an order entered by an account to buy or sell a security that
meets the definition of a short-marking exempt as defined by UMIR.
6.2 Specialized Order Types/Markers
6.2.1 Bypass Order
A Bypass order marker indicates that the Member does not want the order to interact with non-
displayed orders or non-displayed portions of Iceberg or X-berg orders on a Nasdaq Canada
Trading Book. Orders marked with the Bypass marker are treated as Immediate-or-Cancel (IOC).
Example 1
BID ASK
NBBO 10.10 10.15
CXC Quote 100 10.13 (hidden)
CXC Quote 100 10.12 (hidden)
CXC Quote 100 10.10
Action: A Bypass order is entered to sell 100 shares on CXC at 10.10
5 Consistent with NXCL’s Trading Polices the NBBO represents the best protected bid and offer throughout
this Guide.
© 2017 Nasdaq CXC Limited Page 9
Result: The Bypass order will execute against the 100 share lit bid at 10.10 bypassing
the 100 share hidden bid at 10.13 and the 100 share bid at 10.12
Example 2
BID ASK
NBBO 10.10 10.15
CXC Quote 10.13 (hidden) 100
CXC Quote 10.14 (iceberg) 100 (900)
CXC Quote 10.15 100
Action: A Bypass order is entered to buy 200 shares at 10.15 on CXC
Result: The Bypass order will bypass the 100 share hidden limit at 10.13 and execute
100 shares against the 100 visible portion of the 1000 share iceberg order
(bypassing the 900 shares hidden in reserve) and 100 shares at 10.15 against
the lit offer.
6.2.2 Directed Action Order (DAO)
The DAO order marker indicates that the user has already checked the quotes of all other
markets before routing the order to a Nasdaq Canada Trading Book. DAO orders are not re-
priced by the Nasdaq Canada system. DAO orders will trade with the best priced contra-side
order(s) or book (and potentially lock/cross the market) without consideration of prices on other
markets. The DAO is designated in accordance with the Order Protection Rule that permits a
Member using a DAO to opt-out of Nasdaq Canada’s OPR solution and take responsibility for
preventing trade-throughs and locked or crossed markets.
Example 1
BID ASK
NBBO 10.12 10.14
CX2 Book 100 10.11 10.14 100
Action: A DAO order is entered to sell 100 shares at 10.11 on CX2
Result: The DAO order executes at 10.11 according to its order instructions trading
through the 10.12 NBB on another market.
Example 2
BID ASK
NBBO 10.12 10.14
CX2 Book 100 10.12 10.15 100
Action: A DAO limit order is entered to buy 100 shares at 10.14 on CX2
© 2017 Nasdaq CXC Limited Page 10
Result: The DAO order posts 10.14 according to its order instructions locking the market
with the 10.14 NBO on market.
BID ASK
NBBO 10.12 10.14
CX2 Book 100 10.14 10.15 100
6.2.3 Post Only Orders
A Post Only Order is an order that will post in a Nasdaq Canada Trading Book with the intention
to provide liquidity. If a displayed Post Only Order upon entry will result in a trade, the order is re-
priced one tick increment more passively and booked. This order will not interact with hidden
liquidity. Post Only Orders may be combined with any other order type including non-displayed
orders. Two contra-side Post Only non-displayed orders eligible to match will not execute.
Instead, both orders will maintain their price until executing against an active order. In addition, no
execution will take place between a resting dark Limit Order and an incoming contra-order
marked Post Only with the same price as the resting order. Instead, both orders will remain in the
book at the locked price unless a subsequent amendment or automated re-pricing of the first
resting dark order causes that order to become active and executable against the contra-resting
dark Post Only order.
Example 1 A marketable Post Only Order is entered on CXC
BID ASK
NBBO 10.12 10.14
CXC Book 100 10.12 10.14 100
Action: A Post Only Order is entered to buy 100 shares at 10.14 on CXC
Result: The marketable Post Only Order that would otherwise trade is repriced one tick
increment more passively and booked at 10.13
BID ASK
NBBO 10.12 10.14
CXC Book 100 10.13 10.14 100
Example 2 Two Post Only Orders are entered on CXD resulting in a locked book
BID ASK
NBBO 10.12 10.14
CXD Book 100 10.12 10.14 100
Action: A Post Only Order hidden limit order is entered to buy 100 shares at 10.13 on
CXD
© 2017 Nasdaq CXC Limited Page 11
Result: The Post Only Hidden Limit Order rests at 10.13
Updated Book
BID ASK
NBBO 10.12 10.14
CXD Book 100 10.13 (Hidden) 10.14 100
Action: A Post Only Order hidden limit order to sell 100 shares is entered at 10.13 on
CXD
Result: The Post Only Hidden Limit Order that would otherwise trade with the 10.13
Hidden Limit Order locks the book at 10.13
Updated Book
BID ASK
NBBO 10.12 10.14
CXD Book 100 10.13 (Hidden) 10.13 (Hidden) 100
6.2.4 Iceberg/Reserve Order
An Iceberg Order is an order where a Member determines the number of shares to be displayed,
while the remaining shares are hidden in reserve. When the visible portion is fully executed, a
new visible displayed size is refreshed, drawing from the amount of the reserve. New displayed
sizes will refresh until the amount of the reserve is less than the displayed amount. At that point,
the remaining reserve quantity will be displayed. An example of how priority is determined for
Iceberg orders is provided below:
Example
Display Reserve Arrival Time Bid
100 (900) 9:30:00 10.00
200 (300) 9:31:00 10.00
100 0 9:35:00 10.00
In the example above, there are three buy orders posted with a 10.00 limit price. These are: an
Iceberg Order displaying 100 shares with 900 shares undisplayed in reserve; a second Iceberg
Order displaying 200 shares with 300 shares in reserve; and a Limit Order for 100 shares posted
at 10.00.
The displayed buy orders with share sizes of 100, 200, and 100 will be executed against
matching sell orders based on the order matching priority sequence of the Nasdaq Canada
Trading Book where they are posted. The reserve quantities of 900 and 300 will not become
eligible for matching until all displayed shares at that price level have been exhausted. In the
© 2017 Nasdaq CXC Limited Page 12
circumstance where all visible orders and visible portions of Iceberg Orders are displaced, the
hidden portion of multiple Iceberg or X-Berg (see below) orders will execute in order following the
order matching priority sequence of the applicable Nasdaq Canada Trading Book.
Hidden portions of Iceberg Orders are given order matching priority before any fully hidden order.
6.2.5 X-Berg Order
The X-Berg Order is an order that is similar to an Iceberg order. However, instead of the Member
determining the number of shares to be displayed each time the order is refreshed, the displayed
quantity is chosen at random by the Nasdaq Canada System within a pre-specified range set by
the Member. A Member sets the amount of shares to be displayed and the amount of shares to
be held in reserve when first entering the order.
Example
Quantity Price Display Quantity Reserve Random Refresh Range
50000 10.00 1000 49000 +/- 500
Possible Display QTY Refreshes (STU = 100)
1500 Random (Maximum 1000 + 500)
1400 Random
1300 Random
1200 Random
1100 Random
1000 Random (Original Display Quantity)
900 Random
800 Random
700 Random
600 Random
500 Random (Minimum 1000 – 500)
Similar to the Iceberg Order outlined previously, the hidden portion of multiple Iceberg or X-Berg
orders will execute in the order matching priority sequence of the Nasdaq Canada Trading Book it
is entered on.
Hidden portions of X-Berg orders are given order matching priority before any fully hidden order.
6.3 Crosses
6.3.1 Intentional Crosses
An Intentional Cross is the simultaneous entry of both an order to buy and sell the same amount
of a security at the same price entered by the same Member. Intentional crosses are not subject
to cross interference. In accordance with IIROC guidance, Nasdaq Canada Trading Books
© 2017 Nasdaq CXC Limited Page 13
accept better priced intentional crosses including those entered with a price of one half trading
increment.
6.3.2 Internal Cross
An Internal Cross is an Intentional Cross between two accounts that are managed by a single firm
acting as a portfolio manager with discretionary authority in managing the investment portfolio.
Similar to Intentional Crosses, Internal Crosses are not subject to cross interference.
6.3.3 Basis Cross
A Basis Cross is an Intentional Cross of at least 80% of the component share weighting of the
basket of securities, index participation unit, or derivative instrument that is the subject of the
basis trade. In accordance with UMIR, prior to execution, the Member shall report details of the
transaction to IIROC.
6.3.4 VWAP Cross
A VWAP Cross is an Intentional Cross of a security at the volume weighted average price of
multiple trades on a marketplace or on a combination of marketplaces over a specified time
period. The volume weighted average price is the ratio of value traded to total volume. In
accordance with UMIR, where applicable, prior to execution, the Member shall report details of
the transaction to IIROC.
6.3.5 Contingent Cross
A Contingent Cross is an Intentional Cross resulting from a paired order placed by a Member on
behalf of a client to execute an order on a security that is contingent on the execution of a second
order placed by the same client for an offsetting volume of a Related Security as defined in UMIR
6.4 Pegged Orders
6.4.1 Primary Peg
A Primary Peg Order is a buy or sell order that will peg to the passive side of the NBBO. Primary
Peg orders can be entered as either displayed or non-displayed in a Nasdaq Canada Trading
Book. Members have the option of entering a limit price with the order at which price the order will
stay if the NBBO moves above or below the limit price.
© 2017 Nasdaq CXC Limited Page 14
Example 1 Primary Peg Buy Order
BID ASK
NBBO 10.12 10.15
CXC Book 100 10.12
Action: A Primary Peg Buy Order for 100 shares is entered on CXC.
Result: The Primary Peg Buy Order is given the NBB price of 10.12 and rests in the CXC
Book
Updated Book
BID ASK
NBBO 10.13 10.15
CXC Book 100 10.13
Action: The NBB moves from 10.12 to 10.13
Result: The Primary Peg Buy Order is given the new NBB price of 10.13 and rests in the
CXC Book
Example 2 Primary Peg Sell Order
BID ASK
NBBO 10.12 10.15
CXC Book 10.15 300
Action: A Primary Peg Sell Order for 300 shares is entered on CXC.
Result: The Primary Peg Sell Order is given the NBO price of 10.15 and rests in the CXC
Book
Updated Book
BID ASK
NBBO 10.12 10.14
CXC Book 10.14 300
Action: The NBO moves from 10.15 to 10.14
Result: The Primary Peg Sell Order is given the new NBO price of 10.14 and rests in the CXC
Book.
© 2017 Nasdaq CXC Limited Page 15
6.4.2 Mid Peg
A Mid Peg Order is described in Subsection 6.5 of this Guide.
6.4.3 Market Peg
A Market Peg buy/sell order will peg to the best protected ask/bid adjusted by a trading increment
as defined by UMIR.
In order to prevent locked markets, Market Peg orders will book at the best protected bid/ask
adjusted passively by a tick increment.
Market Peg Orders can be entered as either displayed or non-displayed. Members have the
option of entering a limit price with the order.
Example 1 Market Peg Buy Order
BID ASK
NBBO 10.12 10.15
CX2 Book 100 10.14
Action: A Market Peg Buy Order for 100 shares is entered on CX2
Result: The Market Peg Buy Order is given the NBO price minus one trading increment
(10.14) and rests in the CX2 Book
Updated Book
BID ASK
NBBO 10.14 10.17
CX2 Book 100 10.16
Action: The NBO moves from 10.15 to 10.17
Result: The Market Peg Buy Order is given the new NBO price minus one trading
increment (10.16) and rests in the CX2 Book
© 2017 Nasdaq CXC Limited Page 16
Example 2 Market Peg Sell Order
BID ASK
NBBO 10.12 10.15
CX2 Book 10.13 200
Action: A Market Peg Sell Order for 200 shares is entered on CX2.
Result: The Market Peg Sell Order is given the NBB price plus one trading increment
(10.13) and rests in the CX2 Book
Updated Book
BID ASK
NBBO 10.10 10.13
CX2 Book 10.11 200
Action: The NBB moves to 10.10
Result: The Market Peg Sell Order is given the new NBB price plus one trading
increment (10.11) and rests in the CX2 Book
6.4.4 Peg Offset
A Peg Offset is an increment/decrement offset of the peg price that allows a pegged order to
become more passive or aggressive than the quote to which it is pegged. In the case of Buy Peg
Order a peg offset of plus 2 means that the order will peg to the bid plus two cents. In the case of
a Sell Peg Order a peg offset of plus 2 means that the order wil peg to the offer minus two cents.
Peg offsets are not permitted to be added to Mid Peg orders.
Example 1 Primary Peg Buy with a +0.01 increment offset
BID ASK
NBBO 10.10 10.15
CXC Book 100 10.11
Action: A Primary Peg Buy Order with a +0.01 offset for 100 shares is entered on CXC.
Result: The Primary Peg Buy Order is given the NBB price plus +0.01 or 10.11 and rests
in the CXC Book
© 2017 Nasdaq CXC Limited Page 17
Example 2 Primary Peg Sell with a -0.01 decrement offset
BID ASK
NBBO 10.10 10.15
CXC Book 100 10.14
Action: A Primary Peg Sell Order with a -0.01 offset for 100 shares is entered on CXC.
Result: The Primary Peg Sell Order is given the NBO price - 0.01 or 10.14 and rests in
the CXC Book
6.4.5 Pegged Order Handling
Between 8:30 a.m. and 9:30 a.m.: Pegged orders are accepted by the Nasdaq Canada
System but held until 9:30 a.m. when the orders are booked and become eligible to trade.
Multiple pegged orders that are eligible to trade are matched in time priority determined
by the time the order was accepted by the Nasdaq Canada System. At 9:30 each Nasdaq
Canada Trading Book uses a shotgun style open where orders are processed in the
sequence they are received.
From 4:00 p.m. to 5:00 p.m. All pegged orders entered after 4:00 p.m. are rejected. All
pegged orders entered in the book before 4:00 p.m. are cancelled.
When the NBBO is locked or crossed, no pegged order executions are permitted.
6.5 Non-Displayed Orders
6.5.1 Hidden Limit Order
A Hidden Limit Order is a non-displayed limit order that adheres to the same execution priority
conditions as other non-displayed order types.
6.5.2 Mid Peg Orders
A Mid Peg Order is a non-displayed order that floats at the midpoint of the NBBO which is
calculated and updated in real-time by the Nasdaq Canada System. Unique to this order type,
when the NBBO spread is an odd increment, Mid Peg orders will execute at half-tick increments.
Mid Peg orders provide Members the option to enter a limit price with the order which can be
either a full or half-tick increment. Limit prices entered with Mid Peg orders have no impact on an
order’s priority standing. A limit price only determines whether or not an order is eligible to trade
at a particular price point. The Mid Peg order is an ideal tool for Members to reduce market
impact while receiving price improvement opportunities. Adding a pegged offset is not permitted
for Mid Peg orders.
© 2017 Nasdaq CXC Limited Page 18
Example 1 Mid Peg Buy Orders
BID ASK
NBBO 10.10 10.15
CX2 Book 100 10.125
Action: A Mid Peg Buy Order for 100 shares is entered on CX2.
Result: The Mid Peg Buy Order is given the midpoint price of the NBBO or 10.125
Updated Book
BID ASK
NBBO 10.11 10.17
CX2 Book 100 10.14
Action: The NBBO moves from 10.10/10.15 to 10.11/10.17
Result: The Mid Peg Buy Order is given the new midpoint price of the NBBO or 10.14
and rests in the CX2 Book
Updated Book
BID ASK
NBBO 10.16 10.17
CX2 Book 100 10.165
Action: The NBBO moves from 10.11/10.17 to 10.16/10.17
Result: The Mid Peg Buy Order is given the new midpoint price of the NBBO or 10.165
and rests in the CX2 Book
Repricing Sequence of two Locking Mid Peg Orders
Because Mid Peg Orders peg to the midpoint price of the NBBO, two contra-side locking Mid Peg
orders (as a result of either two contra-side Post Only Mid Peg Orders being entered or a non-
Post Only Mid Peg Order being entered followed by a contra-side Post Only Mid Peg Order) will
be repriced when there is a change in the NBBO.
The following sequence of events occurs when the midpoint of the NBBO changes to a lower
price:
A buy Mid Peg Orders will be repriced before a sell Mid Peg Order to the lower midpoint
price;
A sell Mid Peg Order will then be repriced after the buy Mid Peg Order to the lower
midpoint price.
© 2017 Nasdaq CXC Limited Page 19
Similarly the following sequence of events occurs by the Nasdaq Canada System when the
midpoint of the NBBO changes to a higher price:
A sell Mid Peg Order will be repriced before a buy Mid Peg Order to the higher midpoint
price;
The buy Mid Peg Order will then be repriced after the sell Mid Peg Order to the higher
midpoint price.
This sequence of logic can result in a non-Post Only Mid Peg order entered before a contra-side
Post Only Mid Peg executing against this order.
The following sequence of event has occurred for each of the examples below:
The midpoint of the NBBO is 10.025
A Mid Peg buy order is entered as non-Post Only
A Mid Peg sell Post-Only order is entered following the entry of the Mid Peg buy order
locking the market at the midpoint price
Example 1 – Changes in the NBBO resulting in a more passively priced midpoint
Original Order Book and Midpoint
BID ASK MidPoint Price
NBBO 10.00 10.05 10.025
Mid Peg Buy 10.025 10.025 Mid Peg sell Post Only
Action: Protected Best Bid moves to a lower price of 9.99 resulting in a new midpoint
price of 10.02
New Order Book and Midpoint
BID ASK MidPoint Price
NBBO 9.99 10.05 10.02
Actions The Mid Peg buy order is repriced first at the new midpoint price of 10.02
The Mid Peg sell Post Only order is repriced second at the new midpoint price of
10.02
Result No trade (and resulting locked market) as the Mid Peg sell Post Only order will
not become active after being repriced at the new midpoint after the Mid Peg buy
order
© 2017 Nasdaq CXC Limited Page 20
Example 2 – Changes in the NBBO resulting in a more aggressively priced midpoint
Original Order Book and Midpoint
BID ASK MidPoint Price
NBBO 10.00 10.05 10.025
Mid Peg Buy 10.025 10.025 Mid Peg sell Post Only
Action: Protected Best Offer moves to a higher price of 10.06 resulting in a new midpoint
price of 10.03
New Order Book and Midpoint
BID ASK MidPoint Price
NBBO 10.00 10.06 10.03
Actions The Mid Peg sell Post Only order is repriced first at the new midpoint of 10.03
The Mid Peg buy order is repriced second at the new midpoint of 10.03
Result An execution occurs as the Mid Peg buy Post Only order becomes active after
being repriced at the new midpoint after the Mid Peg sell Post Only.
6.5.3 Minimum Quantity
A Minimum Quantity Order (MQ), such as All-or-None (AON), is an order that will only execute if
there is sufficient demand or supply to satisfy the minimum quantity instruction or the entire order
in the case of AON. If the remaining shares of a partially-filled MQ is less than the original MQ
instruction the remaining quantity will become the new MQ instruction.
Example 1
BID Size BID ASK Ask Size
NBBO 10.10 10.14
CXD Buy Order 1 1,000 10.12
CXD Buy Order 2 1,000 10.12
CXD Buy Order 3 500 10.12
Total Bid Size (2,500)
Action: A MQ sell order for 5,500 shares is entered on CXD at 10.12 with a minimum
quantity specified of 2,500 shares.
Result: The aggregate of all buy orders on CXD at 10.12 (2,500 shares) meets the
minimum quantity specified for the MQ order therefore resulting in a trade of
2,500 shares at 10.12. The remaining size of the MQ order is offered at 10.12.
© 2017 Nasdaq CXC Limited Page 21
BID Size BID ASK Ask Size
NBBO 10.10 10.14
CXD 10.12 3,000 (MQ)
Example 2
BID Size BID ASK Ask Size
NBBO 10.10 10.14
CXD Buy Order 1 1,000 10.12
CXD Buy Order 2 1,000 10.12
Total Bid Size (2,000)
Action: A MQ order for 5,500 shares is entered at 10.12 with a minimum quantity
specified of 2,500 shares.
Result: The aggregate of all buy orders on CXD at 10.12 (2,000 shares) does not meet
the minimum quantity specified for the MQ order. Consequently no trade occurs
and the MQ order locks the market at 10.12 in the dark.
BID Size BID ASK Ask Size
NBBO 10.10 10.14
CXD Buy Order 1 1,000 10.12 10.12 5,500 (MQ)
CXD Buy Order 2 1,000 10.12
Total Bid Size (2,000)
Example 3
BID Size BID ASK Ask Size
NBBO 10.10 10.14
CXD Buy Order 1 1,000 10.12 10.12 5,500 (MQ)
CXD Buy Order 2 1,000 10.12
Total Bid Size (2,000)
Action: Using the order book from Example 2 reproduced above a buy order is entered
on CXD for 1,000 at 10.12.
Result: The aggregate of all buy orders on CXD at 10.12 (3,000 shares) now exceeds
the 2,500 minimum quantity specified for the MQ order resulting in a trade of
3,000 shares at 10.12. This leaves a quantity of 2,500 remaining for the MQ order
which is offered at 10.12.
BID Size BID ASK Ask Size
NBBO 10.10 10.14
CXD 10.12 2,500 (MQ)
© 2017 Nasdaq CXC Limited Page 22
Example 4
BID Size BID ASK Ask Size
NBBO 10.10 10.14
CXD 10.12 2,500 (MQ)
Action: Using the order book from Example 3 and reproduced above a buy order is
entered for 2,500 on CXD at 10.12.
Result: The buy order for 2,500 meets the 2,500 minimum quantity specified for the MQ
order resulting in an execution of the remaining 2,500 shares at 10.12.
6.5.4 Minimum Acceptable Quantity
A Minimum Acceptable Quantity Order (MAQ) is an order which specifies a minimum size
quantity to trade against. For example a MAQ to buy 10,000 shares with a 1,000 share minimum
size quantity will only trade against contra side orders of 1,000 shares or more. If the remaining
amount of shares of a MAQ is less than the minimum size quantity specified, the minimum
quantity will become the remaining amount of shares. MAQ orders are hidden on a Trading Book.
Example
BID Size BID ASK Ask Size
NBBO 10.10 10.15
CXD 10,000 10.12 10.15
Action: A MAQ order for 10,000 shares is entered at 10.12 with a minimum quantity
specified of 1,000 shares
Action: A sell order for 2,000 shares is entered at 10.10.
BID Size BID ASK Ask Size
NBBO 10.10 10.15
CXD 8,000 10.12 10.15
Result: The sell order for 2,000 shares executes against the MAQ because the order
size exceeds the minimum size quantity specified with the MAQ order. The
remaining shares of the order decrease to 8,000 shares.
Action: A sell order for 900 shares is entered at 10.11.
BID Size BID ASK Ask Size
NBBO 10.10 10.15
CXD 8,000 10.12 10.11 900
© 2017 Nasdaq CXC Limited Page 23
Result: The sell order for 900 shares does not meet the minimum size quantity specified
with the MAQ order so the order does not execute. The sell order is posted at
10.11 (crossing the hidden MAQ order).
Action: A sell order for 10,000 shares is entered at 10.11.
BID Size BID ASK Ask Size
NBBO 10.10 10.15
CXD 10.11 2900
Result: The sell order for 10,000 exceeds the minimum size quantity specified with the
MAQ order so the order trades against the 8,000 shares at 10.12 with the
remaining 2,000 shares posted at 10.11 alongside the 900 shares previously
entered.
6.5.5 Minimum Price Improvement Order
A Minimum Price Improvement Order (MPI) is an order designed to assist Members in capturing
the largest amount of the bid/ask spread. The behavior of an MPI Order differs whether it is
passive or active.
MPI (Passive)
A MPI Passive Order is a primary peg order with an offset that is one tick increment more
aggressive than the NBBO or will trade at the midpoint of the NBBO if the spread is one tick wide.
The order can be entered with a Limit.
Example
BID Size BID ASK Ask Size
NBBO 10.10 10.15
Action: A 100 share MPI Passive buy order is entered on CXD.
BID Size BID ASK Ask Size
NBBO 10.10 10.15
CXD 100 10.11 10.15
Result: Because the NBBO is 5 cents or 5 standard trading increments wide, the MPI
Passive buy order will float at one tick increment better than the NBB or 10.11 in
this example.
Action: The NBB moves from 10.10 to 10.12.
© 2017 Nasdaq CXC Limited Page 24
BID Size BID ASK Ask Size
NBBO 10.12 10.15
CXD 100 10.13 10.15
Result: Because the NBB has moved to 10.12, the MPI passive order is re-priced by one
tick increment more aggressive or 10.13
Action: The NBB moves from 10.12 to 10.14.
BID Size BID ASK Ask Size
NBBO 10.14 10.15
CXD 100 10.145 10.15
Result: Because the NBB has moved to 10.14, the MPI Passive order re-priced by one
half of one tick increment because the NBBO is at a minimum.
MPI IOC (Active)
A MPI Order combined with an IOC instruction is an active market peg order with an offset that is
one tick increment more passive than the NBBO. A MPI Active Order is designed to seek all
available dark liquidity in the book in order to maximize price improvement opportunities without
crossing the spread.
Example 1
BID Size BID ASK Ask Size
NBBO 10.10 10.15
CXC 100 10.10 10.14 (Hidden Limit) 100
Action: A 100 share MPI Active buy order is entered on CXC. The order is sent to the
book as an IOC order at a price that is one tick more passive than the NBO, or
10.14.
Result: A trade for 100 shares occurs at 10.14 against the Hidden Limit Order offered at
10.14.
Example 2
BID Size BID ASK Ask Size
NBBO 10.10 10.15
CX2 10.10 10.125 (Mid Peg) 100
Action: A 100 share MPI active buy order is entered on CX2. The order is sent to the
book as an IOC order at a price that is one tick more passive than the NBO, or
10.14.
© 2017 Nasdaq CXC Limited Page 25
Result: A trade for 100 shares occurs at 10.125 against the Mid-Point Order offered at
10.125.
Example 3
BID Size BID ASK Ask Size
NBBO 10.10 10.15
CXC 100 10.10 10.13 (Mid Peg) 100
CXC 10.14 (Hidden Limit) 100
Action: A 200 share MPI Active buy order is entered on CXC. The order is sent to the
book as an IOC order at a price that is one tick more passive than the NBO, or
10.14.
Result: A trade for 100 shares occurs at 10.13 against the Mid-Point Order offered at
10.13. A second trade for 100 share occurs at 10.14 against the Hidden Limit
Order.
6.6 Time in Force Conditions
6.6.1 Day
A Day Order will remain posted on the Nasdaq Canada Trading Book where it is entered for the
duration of the Trading Day or until cancelled. At the end of the Trading Day all outstanding,
unfilled Day orders will be cancelled.
6.6.2 Immediate or Cancel (IOC)
An IOC Order is an order for which any portion of the order that is not filled immediately is
cancelled.
6.6.3 Fill or Kill (FOK)
A FOK Order must execute immediately in its entirety otherwise, the entire order is cancelled. No
partial fills are allowed.
© 2017 Nasdaq CXC Limited Page 26
7 Summary of Trading Book Orders
Trading Book Features
Category Order Type CXC CX2 CXD
Traditional Market
Limit
Short Sell
Short Marking Exempt
Specialized Bypass
DAO
Post Only
Iceberg/Reserve
X-Berg
Cross Intentional
Internal
Basis
VWAP
Contigent
Special Settlement
Non-Displayed Hidden
Mid-Peg
Minimum Quantity
Minimum Acceptable
Quantity
Minimum Price
Improvement (MPI)
Time-in-Force IOC
FOK
DAY
GTD
GTC
© 2017 Nasdaq CXC Limited Page 27
8 Odd Lot Trading
8.1 Overview
Each Nasdaq Canada Trading Book enables Nasdaq Canada Members to trade Odd Lot orders
with guaranteed fills for orders that are marked IOC and are immediately marketable against the
NBBO. Odd Lot Members meet their responsibility for guaranteeing executions against incoming
IOC marketable Odd Lot orders on the passive side of the NBBO through orders generated
automatically by the Nasdaq Canada System (auto-execution). Odd Lot orders that are not
immediately marketable or not marked IOC are rejected. When a match occurs, Nasdaq Canada
will send an unsolicited trade report to the Odd Lot Member and an execution message to the
incoming participant. Odd Lot execution messages are included in the CX2 market data feed and
provided to the TMX Information Processor in accordance with NI 21-101.
8.2 How it Works
Example 1 Auto-Execution of a Marketable Buy Order
BID ASK
NBBO 10.10 10.13
Odd Lot Order Volume Price
BUY 9 10.13
Action: An Odd Lot IOC buy order is entered at the NBO (10.13)
Result: Auto-Execution of the Odd Lot Order
Example 2 Auto-Execution of a Marketable Sell Order
BID ASK
NBBO 10.10 10.13
Odd Lot Order Volume Price
SELL 21 10.10
Action: An Odd Lot IOC sell order is entered at the NBB (10.10)
Result: Auto-Execution of the Odd Lot Order
© 2017 Nasdaq CXC Limited Page 28
Example 3 Non-Marketable Buy Order
BID ASK
NBBO 10.10 10.13
Odd Lot Order Volume Price
BUY 9 10.13
Action: An Odd Lot IOC buy order is entered with a limit price of 10.12
Result: Cancelled back
Example 4 Marketable Mixed Lot Sell Order
BID ASK
NBBO 10.10 10.13
Odd Lot Order Volume Price
Buy 121 10.13
Action: A Mixed Lot IOC buy order is entered with a limit price of 10.10
Result: Auto-Execution of the Odd Lot portion and execution against available liquidity at
10.10 with any remaining unexecuted portion cancelled.
Example 5 Marketable Odd Lot Buy Order during a Locked Market
BID ASK
NBBO 10.11 10.11
Odd Lot Order Volume Price
BUY 9 10.11
Action: An Odd Lot IOC buy order is entered with a limit price of 10.11 when the market
is locked.
Result: Cancelled back
© 2017 Nasdaq CXC Limited Page 29
Example 6 Marketable Odd Lot Buy Order during a Crossed Market
BID ASK
NBBO 10.12 10.11
Odd Lot Order Volume Price
BUY 21 10.11
Action: An Odd Lot IOC buy order is entered with a limit price of 10.11 when the market
is crossed.
Result: Cancelled back
© 2017 Nasdaq CXC Limited Page 30
9 Nasdaq CX2 Guaranteed Execution Facility
9.1 Overview
The Nasdaq CX2 Guaranteed Execution Facility enables Exchange Members to receive guaranteed auto-executions of at least the size of the GMV for the residual portion of GEF Eligible Orders. GEF Members will provide auto-executions against residual portions of GEF Orders at the NBB or NBO after all visible quotes
6 have been displaced on the Nasdaq CX2 Book
(CX2) for a Designated Security. GEF auto-executions will only be available when there is a visible quote on CX2 at the NBB or NBO. GEF Eligible Orders that are not marked GEF, immediately marketable, or not marked IOC, will be canceled back. GEF auto-executions will not be available when there is a locked or crossed market on a Designated Security.
When a match occurs, the Exchange will send an unsolicited trade report to the GEF Member(s) responsible for meeting GEF obligations for that Designated Security and an execution message to the Member who entered the GEF Order. GEF Order execution messages are included in the CX2 market data feed and provided to the TMX Information Processor in accordance with National Instrument 21-101 Marketplace Operation. The GEF is available for Designated Securities during between regular trading hours between of 9:30 a.m. and 4:00 p.m.
9.2 How it Works
Example 1 GEF Order is entered at the NBO
BID Size BID ASK ASK size
GMV = 200
NBBO 10.10 10.13
CX2 BBO 200 10.10 10.13 200
GEF Member CV 200 200
Action: GEF Order to buy 400 shares is entered at the NBO (10.13)
Result: 200 shares is executed against the CX2 consolidated displayed offer at 10.13
The residual 200 shares is auto-executed at 10.13 in the GEF Facility
Example 2 GEF Order is entered at NBO when there is not a quote on CX2
BID Size BID ASK ASK size
GMV = 200
NBBO 10.10 10.13
CX2 BBO 200 10.10 10.14 200
GEF Member CV 200 200
Action: GEF Order to buy 400 shares is entered at the NBO (10.13)
6 including visible portions of iceberg orders.
© 2017 Nasdaq CXC Limited Page 31
Result: Auto-execution does not take place because CX2 does not have a visible quote at the NBO.
Example 3 GEF Order is entered with a limit price of 10.11 (inside the NBB)
BID Size BID ASK ASK size
GMV = 200
NBBO 10.10 10.13
CX2 BBO 200 10.10 10.13 200
GEF Member CV 200 200
Action: GEF Order to sell 400 shares is entered at 10.11
Result: Auto-execution does not take place as the GEF Order was entered at a price inside the NBB (10.10) and is not marketable
9.3 GEF Members Committed Volume
Each GEF Member must commit to trade at least the size of the GMV for each Assigned Security against marketable GEF Orders entered at the NBB or NBO when there is a visible quote on CX2. GEF Members will have the option to increase or decrease the size of their auto-execution commitments on one side or both sides of the market for each Assigned Security throughout the trading day. GEF Member Committed Volume can be increased by Board Lot increments up to a maximum of 50 standard trading units. GEF Member CV can be decreased throughout the Trading Day but can never be set below the GMV. Information about each GEF Member’s CV is not made public and is only known by the Exchange Systems. Although the size of the GEF Member CV may be changed throughout the trading day, the GEF Member must always maintain a commitment to trade at least the size of the GMV.
9.4 Competion between GEF Members
For each Designated Security there can be up to five GEF Members responsible for guaranteeing automatic immediate fills for incoming GEF Orders. Where there are multiple GEF Members for a Designated Security, GEF Members are able to compete with one another for a larger portion of incoming GEF Orders by increasing their GEF Member CV. Order allocation between GEF Members is determined on a pro-rata basis based on GEF Member CV. Pro-rata share allotments are rounded up or down to the nearest Board Lot. This order allocation methodology is used to compensate GEF Members for the additional risk accepted by GEF Members when they are willing to trade larger size. The GMV for each Designated Security will be publicly available. GEF Member CV will not be disseminated and will only be known by the Exchange System.
9.5 How Order Allocation Works
Example 1 GEF Order is entered at NBO when each GEF Member CV is the same
BID Size BID ASK ASK size
GMV = 100
NBBO 10.10 10.13
CX2 BBO 200 10.10 10.13 200
GEF Member 1 CV 100 100
© 2017 Nasdaq CXC Limited Page 32
GEF Member 2 CV 100 100
Action: GEF Order to buy 400 shares is entered at the NBO (10.13)
Result: 200 shares is executed against the CX2 consolidated displayed offer at 10.13
GEF Member 1 auto-executes a sale of 100 shares at the NBO (10.13)
GEF Member 2 auto-executes a sale of 100 shares at the NBO (10.13)
Example 2 GEF Order is entered at NBB when each GEF Member CV is the same
BID Size BID ASK ASK size
GMV = 100
NBBO 10.10 10.13
CX2 BBO 200 10.10 10.13 200
GEF Member 1 CV 100 100
GEF Member 2 CV 100 100
Action: GEF Order to sell 600 shares is entered at the NBB (10.10)
Result: 200 shares is executed against the CX2 consolidated displayed bid at 10.10
GEF Member 1 Auto-Executes a purchase of 100 shares at the NBB (10.10)
GEF Member 2 Auto-Executes a purchase of 100 shares at the NBB (10.10)
The remaining 200 shares is cancelled back to the Member
Example 3 GEF Order is entered at NBO when GEF Member 2 has a larger GEF Member CV
BID Size BID ASK ASK size
GMV = 100
NBBO 10.10 10.13
CX2 BBO 200 10.10 10.13 200
GEF Member 1 CV 100 100
GEF Member 2 CV 400 400
Action: GEF Order to buy 300 shares is entered at the NBO (10.13)
Result: 200 shares is executed against the CX2 consolidated displayed offer at 10.13
GEF Member 2 auto-executes a sell of 100 shares at the NBO (10.13). (the GEF Facility provides auto-executions in increments of Board Lots only; GEF Member
© 2017 Nasdaq CXC Limited Page 33
2 is awarded the execution of the 100 residual shares because it has a higher GEF Member CV)
Example 4 GEF Order is entered at NBO when GEF Member 2 has a larger GEF Member CV
BID Size BID ASK ASK size
GMV = 100
NBBO 10.10 10.13
CX2 BBO 200 10.10 10.13 200
GEF Member 1 CV 200 200
GEF Member 2 CV 400 400
Action: GEF Order to buy 500 shares is entered at the NBO (10.13)
Result: 200 shares is executed against the CX2 consolidated displayed offer at 10.13
GEF Member 1 auto-executes a sale of 100 shares at the NBO (10.13) (the pro-rata distribution for GEF Member 1 is 200/600 * 300 which equals 100 shares)
GEF Member 2 auto-executes a sale of 200 shares at the NBO (10.13) (the pro-rata distribution for GEF Member 1 is 400/600 * 300 which equals 200 shares)
Example 5 GEF Order is entered at NBB when GEF Member 1 has a larger GEF Member CV
BID Size BID ASK ASK size
GMV = 100
NBBO 10.10 10.13
CX2 BBO 200 10.10 10.13 200
GEF Member 1 CV 300 300
GEF Member 2 CV 100 100
Action: GEF Order to sell 500 shares is entered at the NBB (10.10)
Result: 200 shares is executed against the CX2 consolidated displayed bid at 10.10
GEF Member 1 auto-executes a purchase of 200 shares at the NBB (10.10) (the pro-rata distribution for GEF Member 1 is 300/400 * 300 which equals 225 shares rounded down to the nearest Board Lot or 200).
9.6 GEF Member Criteria for Appoval
The following criteria must be met by a Member to be eligible to serve as a GEF Member:
1. Execute the GEF Addendum to the Member Agreement;
© 2017 Nasdaq CXC Limited Page 34
2. Have policies and procedures in place to ensure compliance with Exchange Requirements;
3. Have policies and procedures in place to monitor its conduct for compliance with its GEF Member obligations;
4. Carry out all obligations of a GEF Member in compliance with Exchange Requirements; and
5. Have necessary resources (including training and technology) to carry out the obligations of a GEF Member.
9.7 GEF Member Obligations
Each GEF Member must meet the following obligations:
1. Guaranteering fills of at least the size of the GMV for Assigned Securities against any residual portion of GEF Orders at the NBB or NBO after all visible quotes at the NBB or NBO has been displaced on CX2;
2. Maintaining a one or two sided quote of at least one Board Lot at the NBBO for a minimum percentage of primary market trading hours per month through one or more UMIR IDs, as specified by the Exchange;
3. Trading at least a minimum percentage of Total Consolidated Volume per listing exchange across all Trading Books per calendar month, as specified by the Exchange.
9.8 GEF Eligible Orders
A GEF Eligible Order is a client order entered by a certified GEF UMIR ID for a Designated Security where the entire size of the original parent order is less than or equal to a pre-determined multiple of the GMV determined by the Exchange, provided that the order is not:
One of multiple orders for the same client on the same day;
An order entered by a DEA client, unless the DEA client is a broker acting as an agent for retail client order flow;
An order entered on behalf of a US dealer unless o The order is for a client of a US dealer, unless; o The dealer first confirms the order is for a client of the US dealer or;
For a client that is generally involved in active and continuous trading on a daily basis.
In order for a GEF Eligible Order to be a GEF Order the order must be marked GEF and IOC.
9.9 GEF UMIR IDs
Members are required to certify all GEF UMIR IDs that are used to send GEF Orders. The Exchange will monitor each certified GEF UMIR ID using objective criteria including order to trade ratios, and message to trade ratios, to confirm that the certifications are in compliance with GEF Order eligibility.
© 2017 Nasdaq CXC Limited Page 35
10 Non-Display Order Handling in Compliance with IIROC Dark Rule Framework
10.1 Overview
Each Nasdaq Canada Trading Book supports non-displayed orders. In accordance with IIROC’s
Dark Rule Framework, all visible orders must be executed before a non-displayed order at the
same price level irrespective of whether the non-displayed order was entered first. In addition,
non-displayed orders that do not meet the minimum size requirements7 set by IIROC must
provide minimum price improvement to the order defined as one trading increment or a half
trading increment if the bid-ask spread is at a minimum. Non-displayed orders that meet the
minimum size requirements may trade at the NBBO. Compliance with the IIROC Dark Rule
Framework is enforced by the Nasdaq Canada System.
10.2 How it Works
Example #1 IIROC Dark Rule Framework
BID Size BID ASK Ask Size
NBBO 10.10 10.15
CXC 100 (HL) 10.12 10.15 100
Action: A market order to sell 100 shares (does not meet IIROC’s minimum size
requirement) is entered on CXC.
Result: The sell order executes against the buy hidden limit (HL) order posted at 10.12
which is permitted because the 10.12 price is more than one full tick increment
better than the NBB.
Example #2 IIROC Dark Rule Framework
BID Size BID ASK Ask Size
NBBO 10.10 10.15
CX2 100 10.10 10.15 100 (HL)
Action: An IOC market order to buy 100 shares (does not meet IIROC’s minimum size
requirement) is entered on CX2.
Result: The buy order is cancelled back to the Member as the order does not meet
IIROC’s minimum size requirement and the 10.15 hidden limit offer does not
represent a full tick increment better than the NBO.
7 IIROC’s Minimum Size Requirements is defined as an order for more than 50 standard trading units or has
a value of more than $100,000.
© 2017 Nasdaq CXC Limited Page 36
Example #3 IIROC Dark Rule Framework
BID Size BID ASK Ask Size
NBBO 10.12 10.13
CXD
100(Mid-
Peg) 10.125 10.13
100 HL
Action: A market order to sell 100 shares (does not meet IIROC’s minimum size
requirement) is entered on CXD.
Result: The sell order executes against the dark midpoint buy order floating at 10.125
which is permitted because the spread is one tick wide and because 10.125
provides price improvement over the NBBO.
Example #4 IIROC Dark Rule Framework
BID Size BID ASK Ask Size
NBBO 10.10 10.15
CXD 5100 HL 10.10 10.15 100 HL
Action: A market order to sell 5100 shares (meets IIROC’s minimum size requirement) is
entered on CXD.
Result: The sell order executes at the NBB or 10.10 because the size of the order meets
the minimum size requirement.
© 2017 Nasdaq CXC Limited Page 37
11 Order Handling Compliance with the Order Protection Rule
11.1.1 The Order Protection Rule
The Order Protection Rule requires all visible, immediately accessible, better-priced protected
limit orders to be filled before other protected limit orders at inferior prices, regardless of the
market where the order is entered. The purpose of OPR is to ensure that if a protected order is
entered on a marketplace with the best price, it will be executed ahead of inferior priced protected
orders irrespective of where the order is posted.
11.1.2 Nasdaq Canada Order Protection rule
Nasdaq Canada consumes external market data from all markets.. Order and trade information
from protected markets are consolidated with market data from Nasdaq Canada Trading Books to
provide the Nasdaq Canada System with real-time market price information.
When an order is received on a Nasdaq Canada Trading Book, the order is compared to the
current NBBO. Members may elect from one of the following OPR solutions that will instruct the
Nasdaq Canada System how to handle any order that would cross the NBBO and either trade-
through or quote-through a better priced protected order:
Cancelation: orders that would otherwise trade-through will be rejected;
Repricing: orders that would otherwise trade-through will automatically be re-priced one
trading increment more passively to prevent a trade-through or a crossed market from
occurring. In addition, orders that are entered at the NBBO on the CXC or CX2 Trading
Books that would lock the market will also be re-priced.
Members are provided Nasdaq Canada’s order re-pricing OPR solution on both the CXC and
CX2 books by default. When an order is re-priced, its price priority after each re-pricing is
determined by the price level to which it has been re-priced, while its time priority is determined
by the time each re-pricing occurs. When re-pricing multiple orders to the same price level, the
time sequence for the re-pricing will be determined by each order’s original timestamp or by the
timestamp associated with the last re-pricing, whichever is more recent.
Nasdaq Canada Members are able to opt-out of Nasdaq Canada’s OPR solutions by using a
DAO Order. The DAO Order marker indicates that the Member entering an order has already
checked the quotes of all other markets before routing the order to either CXC or CX28. When
using the DAO marker, the obligation to not have policies and procedures to prevent a trade
through falls on the Member.
8 CXD does not support DAO Orders.
© 2017 Nasdaq CXC Limited Page 38
11.1.3 How it Works
The following Market Conditions should be used for the examples below.
BID ASK
NBBO 10.10 10.13
CXC Trading Book 10.09 10.14
Example 1 Trade-Through Prevention Rejection – Market Order
Action: A market order to sell 100 shares is entered on CXC
Result: The order is rejected to prevent a a trade below the NBB of 10.10
Example 2 Trade-Through Prevention Repricing – Market Order
Action: A market order to sell 100 shares is entered on CXC
Result: The order is re-priced one trading increment more passively than the NBB or
10.11
BID ASK
NBBO 10.10 10.13
CXC Trading Book 10.09 10.11
Example 3 Trade-Through Prevention Rejection – Aggressive Limit Order
Action: A limit order to buy 100 shares is entered on CXC at 10.13
Result: The order is rejected to prevent a locked market occuring on CXC at 10.13
Example 4 Trade-Through Prevention Repricing – Aggressive Limit Order
Action: A limit order to buy 100 shares is entered on CXC at 10.13
Result: The order is re-priced one trading increment more passively than the NBO or
10.12
BID ASK
NBBO 10.10 10.13
CXC Trading Book 10.12
Example 5 Trade-Through Prevention – Market Order on CXD
Action: A market order to sell 100 shares is entered on CXD
Result: The order is re-priced to the NBB locking the market in the dark at 10.10
© 2017 Nasdaq CXC Limited Page 39
BID ASK
NBBO 10.10 10.13
CXD Trading Book 10.10
© 2017 Nasdaq CXC Limited Page 40
12 Nasdaq Canada Risk Management Tools
All of the following risk management tools are supported on each Nasdaq Canada Trading Book.
12.1 Cancel on Disconnect
Members are given the option to have all open orders cancelled in the event that a FIX session
between Nasdaq Canada and the member is disconnected.
12.2 No-Self Trade
The Nasdaq Canada No – Self Trade feature is enabled on an order by order basis through the
use of two FIX tags; the first FIX tag denotes a Member generated key to prevent orders with the
same key value from the same Member trading against each other, and the second informs
Nasdaq Canada which No – Self Trade option should be applied.
Members can choose from one of the following No – Self Trade options:
Cancel the Active order (Cancel Active);
Cancel the Passive order (Cancel Passive);
If the orders are different in share quantity, reduce the larger order and cancel the other
one (Decrement and Cancel);
Send a fill to both orders that is not included as a trade on the public market data feed
(Execute Match).
The unique key provided by a Member using this option is intended for use only on buy and sell
orders for accounts that may result in trades where there is no change in beneficial or economic
ownership.
12.3 Order Entry Parameters
12.3.1 Price Thresholds
Nasdaq Canada supports Marketplace Thresholds described in the following section.
12.3.2 Share Limit
Members are able to set the maximum number of shares permitted per order per security. If an
order is entered which exceeds the share limit, the order will be rejected and sent back to the
Member.
12.3.3 Notional Limit
Members are able to set the maximum notional value per order per security. The notional value of
a trade is calculated by the number of shares multiplied by the price of the security. If an order is
entered which exceeds the notional limit the order will be rejected and sent back to the Member.
© 2017 Nasdaq CXC Limited Page 41
12.4 Marketplace Thresholds
12.4.1 Overview
Marketplace Thresholds operate as part of a multi-tiered approach to preventing erroneous
orders and controlling short term, unexplained price volatility. In accordance with IIROC
Guidance, Nasdaq Canada supports Marketplace Thresholds on all of its trading books. Orders
are prevented from executing outside of two reference prices; the national last sale price (NLSP)
and the national last sale price established at one-minute intervals (OMLSP) (each a Reference
Price, taken together Reference Prices). Marketplace Thresholds are applicable during regular
trading hours (9:30 a.m. and 4:00 p.m.) on all Trading Books and from 4:00 p.m. to 5:00 p.m. on
CXC and CX2 and apply to all orders including DAO with the exception of a Basis Order, a
Closing Price Order, a Special Terms Order, a Volume-Weighted Average Price Order, an
Opening Order, a Market-on Close Order and an order that participates in an auction following
the resumption of trading after a trading halt.
12.4.2 Marketplace Threshold Levels
IIROC has prescribed different threshold levels for different classes of securities. Please see
IIROC Notice 15-0186 Guidance Notice on Marketplace Thresholds (August 25, 2015) and IIROC
Notice 16-0138 Additional Guidance Respecting Single-Stock Circuit Breakers and Marketplace
Thresholds (June 20, 2016) for a list of prescribed thresholds for each asset class. Members
should refer to any new IIROC Guidance as it becomes available and is amended from time to
time.
12.4.3 Nasdaq Canada Marketplace Thresholds
An order that is entered on a Nasdaq Canada Trading Book at a price that exceeds either
Reference Price will be rejected upon entry. If a rejection occurs, the order will be returned to the
Member with a message describing that reason for the rejection. An order can be rejected as a
single order or as part of a series of orders. In addition, in the rare circumstance where an order
is resting in the order book at a price that, if executed would exceed a Reference Price, the order
will be repriced to within the threshold parameter based on the most recent Reference Price.
Finally, a market order that is entered without a limit price will be assigned a limit price upon entry
and will post any remaining shares at the price of the most conservative Reference Price adjusted
for the applicable threshold level. For example, a buy order that is entered as a market order on a
security that has a 10% thresholds will be assigned a price that is 110% of the lowest Reference
Price.
© 2017 Nasdaq CXC Limited Page 42
12.4.4 How it Works
The following Reference Prices are used for all examples.
NLSP OMLSP Marketplace Threshold
$10.00 $10.05
10% from each Reference
Price
Example 1 Violation of the NLSP
Action: Buy order entered at $11.02
Outcome: Order is rejected because it exceeds the NLSP by greater than 10%. ($11.02 >
110% of $10.00 or $11.00)
Example 2 Violation of the OMLSP
Action: Sell order at $9.02
Outcome: Order is rejected because it exceeds the OMLP by greater than 10%. ($9.02 <
90% of $10.05 or $9.045)
Example 3 Resting order repriced to prevent a potential trade outside the allowable
threshold level
Action: Resting buy order at $11.00.
NLSP changes to $9.50
Outcome: Resting order is re-priced to $10.45. ($10.45 = 110% of $9.50, or $10.45)
Example 4 – Unpriced (market) order re-priced
Quantity BID ASK Quantity NLSP OMLSP
100 8.90 10.10 500 10.00 10.05
200 8.89 10.11 2000
Action: Sell order entered as a market order.
Outcome: Order Re-priced to $9.05. ($9.05 = 90% of $10.05).